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Here’s Why You Shouldn’t Fear The CBO Minimum Wage Report

Here’s what you need to keep in mind about the Congressional Budget Office report that is generating headlines that a $10.10 minimum wage could cost 500,000 jobs: That report is not the indictment that it is being made out to be in the mainstream media and by right-wing politicos.

A group of economists at a call organized by the Economic Policy Institute on Tuesday agreed that, in the words of Robert Greenstein of the Center for Budget and Policy Priorities, “when you look at the whole report … the positives outweigh the negatives.”

The CBO report predicted that the center of range of possible effects of a $10.10 minimum wage by 2016 would be a 0.3 percent reduction in the number of jobs that would presumably otherwise be available at that time, or a net reduction of 500,000 jobs.

That is different from an earlier estimate from EPI that there would be a net increase of 85,000 jobs as a result of a $10.10 minimum wage increase. But remember that these two estimates are in the context of a workforce that is likely to be as large as 140 million people by 2016.

At the same time, the report said that the increase would put $31 billion additional into the pockets of low-wage workers, one in five of whom are now below the poverty line. That would reduce the need for the working poor to rely on public benefits. Also, this money would quickly circulate through the economy and give it a boost, a point on which both the CBO and minimum-wage-increase supporters agree.

The White House Council of Economic Advisers in its analysis noted that the “CBO also agrees that the employment effect could be essentially zero, but their central estimates are not reflective of a consensus of the economics profession.”

That consensus, the council brief said, is that “the effects on employment of minimum wage increases in the range now under consideration are likely to be small to nonexistent.”

Christine Owens of the National Employment Law Project likewise said that the CBO report “is an outlier that flies in the face of overwhelming empirical evidence. The effect of raising the minimum wage is one of the most thoroughly studied topics in modern economics, and the vast majority of the more than 1,000 estimates contained in studies dating back to 1972 show no significant adverse effects on employment.”

The CBO report concedes that estimating the impact of a minimum wage increase in a complex economy is not an exact science. “The extent to which employment would respond to changes in the minimum wage in 2016 in the same way that it has in past years is uncertain,” the report says. For example, the report went on to say, it is not clear to what extent employers would be able to replace workers with technology, and whether those replacements would actually be judged as improvements the bottom line.

Center on Economic and Policy Research’s John Schmitt recently authored a report that, in the words of EPI’s Douglas Hall, “illustrates the folly of ‘doom and gloom’ job-loss arguments, which fail to account for the several ‘avenues of adjustment’ available to employers that can and do prevent employment loss, including improved productivity and efficiency, reduced turnover and training costs, modest price increases, increases in demand (resulting from the stimulative impact of increasing lower-income wages), and reduced profits.”

Joseph Stiglitz, one of the Pulitzer Prize-winning economists who have endorsed a minimum wage increase, was on the EPI call and said that “in many respects, the CBO underestimated the benefits and overestimated the costs.”

The CBO also examined an alternative proposal to limit a minimum wage increase to $9 an hour, without a future adjustment to inflation. The CBO, not surprisingly, found that the effects, both positive and negative, would be far more modest. Stiglitz in response said “there is no compelling case to limit [the minimum wage increase] to $9.00.”

It is also important to remember that CBO estimates are projections based on the economy as it is. And today’s economy in the United States is a weak one that is being stymied by conservative-instigated political gridlock. If the political policy framework changes, allowing for more stimulative economic policies that would lead to a tighter job market, the CBO’s job-loss prediction could easily be rendered false.

But even without that consideration, the CBO report should not be allowed to stop the push for a minimum wage increase. A $10.10 minimum wage will lift 900,000 people out of poverty. It will put more money in the pockets of 16 million more workers. It will boost the economy as a whole. And the prediction of even a modest job loss flies in the face of past experience. The bottom line, said EPI economist Heidi Shierholz, is that “this is a really good time to raise the minimum wage” – and $10.10 is still the right goal.

This work is licensed under a Creative Commons License

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